Ireland rescues Anglo Irish with €4bn of state capital

Ireland was forced to complete a hat-trick of banking bail-outs yesterday
after revealing that it had no choice but to inject €4bn (£3.5bn) into
stricken lender Anglo Irish Bank.

By Philip Aldrick

8:52PM BST 29 May 2009

The Government had hoped to avoid forking out any more taxpayer money after nationalising Anglo Irish earlier this year, but Finance Minister Brian Lenihan said he had no option after the lender's "extremely disappointing" €4.1bn pre-tax loss for the year to March, the worst performance in Irish banking history.

Allied Irish Bank and Bank of Ireland have already received capital injections of €7bn and Mr Lenihan said earlier this week the Government hoped to limit the cost of banking rescues this year to 4pc of GDP. After the €4bn for Anglo Irish, which requires European state aid approval, the bail-outs will account for 6pc of GDP.

The capital injection was required because Anglo Irish's core tier-one ratio sank to just 1.4pc at the end of March and to continue operating it required a temporary waiver over capital requirements. The bail-out will lift the ratio to 6.4pc.

The bank's loss was a result of a €4.1bn bad debt charge, taken as a provision largely against €17.7bn of loans to property developers. Bad debts may rise by as much another €3.5bn, which would force the bank back to the taxpayer for more capital, said executive chairman Donal O'Connor.

Anglo Irish will transfer the development portfolio to the government's National Asset Management Agency, which is being set up to cleanse Irish banks of toxic property loans. "Before we invest the money, the bank will work on a strategic plan so that we can work out how to de-risk this bank," Mr Lenihan said.

Ireland was forced to take over the country's third largest bank in January after customer and shareholder confidence collapsed in the face of a string of scandals. The board was purged earlier this year after it emerged that former chairman Sean FitzPatrick had kept shareholders in the dark about €84m worth of loans he had received from the bank. Other directors had loans worth €95m at the end of the year.

Anglo Irish has taken a loss of €31m on loans to former directors. "We are dealing with those exactly as we deal with any other customer," Mr O'Connor said.